The consumer's thoughts turn to housing

The nation's most confident consumers are young, urban, Labor-voting male tradies with household income of more than $100K a year. As there may not be all that many of them, it's fortunate that the nation as a whole has turned decidedly optimistic.

Only one small sub-group – those with household income of less than $20,000 – remains below the Westpac/Melbourne Institute consumer confidence survey break-even point between optimists and pessimists. The vast majority of us are at our most optimistic in two years, according to the March survey.

And when an Australian is optimistic, it seems his and her thoughts turn to real estate. The “time to buy a dwelling” index picked up another couple of points this month at 144.5, within a whisker of the 2009 high and up nearly 20 per cent on last March's 120.8, never mind the 114.5 of March two years ago.

The “time to buy a car index”, the average person's second-biggest purchase, is knocking on the door of its 2003 peak, but it's the housing opinion that will seize the attention of the Reserve Bank and Treasury. It will fuel RBA hopes that the interest rate cuts already made are enough to get housing construction moving and Treasury's prayers that housing investment will play a crucial role in easing the economy's transition from relying on resources investment for growth.

(Despite some of our alleged consumer pessimism over the last year and more, we were buying cars and going on overseas holidays in record numbers anyway. While there has traditionally been a lagged correlation between the consumer confidence survey and retail sales, total consumption has run a somewhat different race.)

So, in the perverse way of such things, individuals' greater optimism about interest rates and housing is likely to reduce the chances of interest rates being cut much more while helping to increase the price of housing – and therefore making housing less affordable.

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In a rational world of falling interest rates and rising prices, you might think home owners and those paying off mortgages would have more to be happy about, but the latest survey's demographic breakdown has tenants more confident (a score of 115.1) than mortgagers (109.9) and outright owners (1095). It seems our herd instinct make us as silly about the housing market as we are about shares – we prefer to buy when prices are rising and more expensive than when they're cheap.

It's dangerous to read too much into some of the survey's finer details as sample sizes appear to result in suspiciously wild swings. The confidence of the occupation group “labourer and operator” supposedly jumped more than 22 per cent in a single month when all other evidence suggests that group's current conditions and immediate outlook have worsened. And “sales/clerical staff” slumped nearly 17 per cent this month after soaring 32 per cent in February – probably not, or they are occupations prone to manic depression.

With a larger sample size, the federal voting intention category should be more reliable and remains one of the more interesting areas for speculation. After closing much of the extraordinary gap that opened up in July, outlooks are diverging again – Labor voters up 2.4 from last month to 126.8 while coalition voters fell 3.5 to 101.7. Given the larger number of coalition than Labor voters, one might wonder how the overall index managed to rise.

But rise it did and has now for three months in a row, a trend that is big enough to look solid, presumably as Australians take comfort from rising housing and equity markets and lower interest rates.

The survey also is a triumph of perceptions over likely reality. Australians' sentiment about the outlook for economic conditions over the next 12 months rose six per cent to 107.1 to be nearly 15 per cent higher than a year ago. That's at odds with most of the credible forecasters around the place (the RBA, Treasury, the major banks) and many of the non-credible forecasters. Despite the various challenges, on any objective measure 2012 wasn't such a bad year and 2013 isn't likely to be as good on the economic growth or unemployment counts.

Still, if enough people really believe it, perception can sometimes become reality.